Technology: Using contract terms to manage e-discovery costs and burdens

In the 1983 movie “WarGames”, the semi-sentient computer WOPR comments on the rationality of global thermonuclear war:

“A strange game. The only winning move is not to play. How about a nice game of chess?”

E-discovery is an inevitable part of any litigation involving sophisticated business entities. While “global thermonuclear war” may be a bit of an overstatement, the cost and scope of e-discovery has made it the enemy of corporate legal budgets and the most hated line item on any legal bill.

Waiting for litigation to occur before thinking about how to approach e-discovery is like going through space and encountering a black hole. You don’t know you’re in it until you have crossed the event horizon, and by then it’s too late. The choice of a black hole as a metaphor here is not arbitrary; just as a black hole consumes matter remorselessly, unconstrained e-discovery is a voracious consumer of corporate funds.

This series of articles will explore one way to control your e-discovery costs, namely including mutually-agreed upon terms in commercial contracts that address the scope of discovery in the event of a dispute. As we will see, this will help businesses avoid excessive costs and reduce burdens on operations.

How big of a black hole are we talking about?

In the last decade, businesses have experienced sweeping changes regarding the expectations courts and litigants have when it comes to discovery of electronically stored information. The 2006 changes to the Federal Rules of Civil Procedure make it clear that a party has a duty to disclose electronically stored information. However, the developing state of jurisprudence on what exactly this duty requires can subject companies to ambiguity regarding how their e-discovery policies and procedures will be judged in hindsight. This ambiguity results in a situation where a company must adopt a least-common-denominator approach to its discovery obligations, internally applying the most restrictive rules from each leading case, resulting in a very expensive exercise.

Discovery-limiting clauses have the potential to ease the burdens of e-discovery for courts and commercial litigants. Businesses will benefit from reduced preservation and production costs by establishing a more predictable discovery framework. Parties will also reduce their risk of incurring sanctions because specific discovery obligations will be included in the terms of the contract. Courts will benefit from prearranged e-discovery protocols as well. Rather than managing discovery matters after litigation has commenced, courts will largely be relieved from considering such matters when it comes to disputes regarding the contract at issue.

In successive articles in this series we will explore five model clauses which will: 1) restrict the duty to preserve to instances where a notice or request to preserve is served; 2) limit the amount of discovery allowed; 3) establish mechanisms that govern preservation and production decisions in a predictable framework; 4) establish procedures allocating the costs for discovery; and 5) outline restrictions on sanctions for purported discovery failures.

Are discovery clauses enforceable?

Although courts have yet to consider the issue directly, there are several other areas in which procedural rules can be modified by agreement of the parties. Parties can contractually agree to waiver of a jury trial, choice of law and choice of venue. Parties can also specify dispute resolution protocols within their contracts, such as negotiation between principles as a condition precedent prior to suit. Additionally, while not directly analogous because of the effect of the Federal Arbitration Act, parties are allowed to specify alternative dispute resolution methodologies, such as arbitration, that are binding on the court.

Routine discovery would be outlined in the contract, which could obviate court proceedings to establish the scope and volume of production and reduce the number of disputes. During negotiations of contract language, each party would have input into the extent of the limits, which would reduce the likelihood that the discovery section of an agreement would predominately favor one party over another. The model language we will explore in the subsequent articles presents three major paths to enforceability:

Waiver: A party waives its right to seek discovery beyond that which is specified in the contract.

Breach: A party undertakes not to seek discovery beyond that which is specified in the contract, and is liable for any cost of the other party as a result of that breach.

Cost shifting: If a party is given discovery beyond that specified in the contract, that party agrees to bear the cost for that discovery.

Despite numerous benefits, companies will want to take a considered approach when including clauses in commercial contracts that limit discovery. Parties must take care to guard against potential disputes and challenges to enforceability. Likewise, businesses should keep in mind that such clauses would not obviate the need for preservation in relation to third parties or statutory and regulatory requirements. Finally, parties must understand that they are potentially giving up rights to obtain information relevant to future claims or defenses in exchange for a more predictable dispute resolution process.

Many attorneys consider themselves to be akin to a chess player, crafting intricate strategies to outflank an opponent while defending their own position unassailably. Then, while they are still working on their initial issue analysis and case roadmap, they pass the e-discovery event horizon and end up engaged in global thermonuclear war. Which, as we know from the movies, is not the path to victory. Modifying your commercial templates to include a section on e-discovery is a cheap and easy way to change the game back to chess.

Next in this series: Practical advice for drafting an enforceable e-discovery clause